HarperCollins finished the fiscal year ended June 30, 2016 on a high note with double-digit gains in sales and earnings for the fourth quarter. Despite the late rally, total revenue for the full year fell 1.2%, to $1.65 billion, while EBITDA (earnings before interest, taxes, depreciation, and amortization) dropped 16.3%.
The improvement in the fourth quarter—in which sales rose 11% and EBITDA was up 52%—was due to solid frontlist sales of such titles as The Nest, The Rainbow Comes and Goes, and The World’s Worst Children, the last of which has done especially well in English-language markets outside of the U.S. An extra week added $19 million to revenue in the quarter.
The final quarter of fiscal 2016 was also the first period in the last fiscal year in which HC was not facing difficult comparisons to fiscal 2015, when sales of the Divergent series and American Sniper generated $69 million more in revenue than they did last year. HC CEO Brian Murray observed that the fourth-quarter comparisons also reflected a settling down of the e-book pricing and business models that took place last year as discounting eased. All those changes, Murray said, “made for an apples-to-apples comparison.”
In a conference call with financial analysts, Robert Thomson, CEO of HC parent company News Corp, noted that HC had a “palpable upturn” in the fourth quarter and reiterated that “we’re very confident in the momentum of the book industry.” Part of that momentum appeared at the end of fiscal 2016, Thomson said, when the $20 million in cut costs from the integration of Harlequin (following its acquisition in 2014) allowed for a big jump in the fourth-quarter earnings.
Murray was happy with the fourth-quarter performance, but noted that HC faced difficult comparisons in the current period, because the publication of Go Set a Watchman in July 2015 resulted in record print sales for a hardcover. But like Thomson, Murray said he believes the fundamentals of the book industry are strong.
Print sales at HC rose in the last fiscal year, and though some industry members and observers have attributed the increase in print sales mainly to adult coloring books, Murray said HC has seen improvement in print for many of its major authors. He speculated that the improvement is due to a smaller difference between the price of e-books and that of discounted hardcovers, as well as to “screen fatigue” among readers. While e-book sales fell in the year, sales of downloadable audio had a big gain and HC’s digital business with libraries increased, Murray said. Altogether, digital sales accounted fell 15% in fiscal 2016 and accounted for 19% of HC’s consumer revenue in the year, down from 23% in fiscal 2015. Murray thinks the slow decline of e-books may be coming to an end and that e-book sales could see modest single-digit growth ahead.
The rebound of print has contributed to what Murray believes is one of the most encouraging recent trends—the growth of independent bookstores and new concept stores from Indigo (recently opened in Toronto) and the forthcoming Barnes & Noble stores set to open later this year.
Murray believes HC is well-positioned for fiscal 2017, as the integration of Harlequin continues to result in not just cost savings, but sales gains as well. Speaking with analysts, Thomson said Harlequin’s top line has benefited from being part of HC which, in the case of certain titles, has lifted sales by as much as 50% to 100%. Murray explained that HC and Harlequin have been able to exercise “true synergy.” HC distribution into the trade has helped Harlequin accelerate its growth into bookstores, as Harlequin continues its push beyond the romance category, Murray said; the reverse is true in the case of some Avon books that have seen increased sales at outlets such as Walmart, where Harlequin has a strong presence.
The HC-Harlequin combination has also helped increase international sales. HC has rebranded all overseas Harlequin offices as HarperCollins divisions while continuing to operate the existing Harlequin program. As part of developing a worldwide trade publishing program, Murray said HC has released 400 titles through its rebranded HC offices and has had international hits with such authors as Karin Slaughter and Daniel Silva.
Murray said he has “high hopes” for a range of HC forthcoming books, including Megyn Kelly’s memoir, Settle for More, and a new title from Divergent author Veronica Roth, Carve the Mark. He acknowledged that consumer traffic at stores could have been better in the first half of the year, but he hoped that the frenzy that accompanied the release of Harry Potter and the Cursed Child Parts 1 and 2 will bring more people into bookstores for the rest of the year.
HarperCollins Results, Fiscal 2014–2016
($ in millions)
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Source: HarperCollins, Publishers Weekly